Data: The Gravity of Koreans’ Debt

How bad is the debt problem in South Korea? There are some new numbers that provide clues.

More than 1 million Koreans, or about 4% of the economically-active population of 25 million, once joined in or are currently working with personal debt workout programs, the Credit Counseling & Recovery Service says.

Reuters

A woman walks past a bank’s advertisement showing its lending rate in Seoul.

The non-profit agency started the program called “Personal Workout” in October 2002 in order to help people resolve their debt problems and regain their credit. Anyone who has less than 500 million won in debt (about $450,000) and is behind in debt payments by more than three months is eligible for the program.

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Under the program, a participant can get overdue interest and part of the principal written off in return for full commitment to repayment. The agency works together with the country’s financial watchdog Financial Services Commission and around 3,600 financial firms.

The overall number of people who apply for the program has recently slowed. That’s partly because a new program called “Free Workout” has been up and running since 2009 as a preventive measure for those with less severe debt issues. Anyone with less than 500 million won in debt and who is less than three months behind debt payment can join that program.

“More and more people visit us even though they are not on the verge of default. People want to just come here for a piece of financial advice before their problem gets too serious.” said Yoo Jae-chul, an official at the CCRS.

In 2003, the number of applicants for the “Personal Workout” program was 63,055 and it peaked the next year to 350,407 due to the so-called “Credit Card Crisis” where the careless issuance of credit cards to people even with poor credit triggered the massive liquidity problems at the country’s card firms, which in turn caused people to default on their debts. The number went down to 84,590 in 2010. Last year fewer people or 68,099, asked for help. The total of 58,273 has applied for it so far this year.

The number of people under the “Free Workout” program was 8,431 in 2009, 7,282 in 2010, and 9,826 so far this year.

“About 50% (of the people who started the workout programs) stick with it sincerely, 20 % successfully paid back their debt, and about 30% drop out of the program midway through it,” Mr. Yoo said. He didn’t provide the precise number.

For the third quarter that ended in September, 19,350 people started the “Personal Workout” program. Most of them, around 67%, are in their 30s and 40s. And even more of them, about 84%, earn less than 1.5 million won a month. The average monthly wage in South Korea is 2.7 million won.